Welcome to the IRadimed Corporation Fourth Quarter of 2023 Financial Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded today, February 8, 2024, and contains time-sensitive information that is accurate only today. Earlier, IRadimed released its financial results for the fourth quarter of 2024.

A copy of this press release announcing the company's earnings is available under the heading News on their website at iradimed.com. A press release copy was also furnished to the Securities and Exchange Commission on Form 8-K and can be found at sec.gov.

This call is being broadcast live over the Internet on the company's website at iradimed.com, and a replay of the call will be available on the website for the next 90 days. Some of the information in today's session will constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements focus on future performance, results, plans and events and may include the company's expected future results. IRadimed reminds you that future results may differ materially from these forward-looking statements due to several risk factors.

For a description of the relevant risks and uncertainties that may affect the company's business, please see the Risk Factors section of the company's most recent reports filed with the Securities and Exchange Commission, which may be obtained free from SEC's website at sec.gov.

I would now like to turn the call over to Roger Susi, President and Chief Executive Officer of IRadimed Corporation. Mr.

Susi?.

Thank you, operator. Good morning, and thank you for joining us on today's call. I'm very happy to report our 10th consecutive record quarter. We believe Q4 2023 further demonstrates the strength of IRadimed's product offerings and our ability to execute.

As this morning's press release announced, fourth quarter 2023 revenue came in at $17.5 million, representing a 17.4% increase over the fourth quarter of 2022. GAAP diluted earnings per share for the fourth quarter were $0.36, while non-GAAP diluted earnings were $0.39 per share, a 22% increase over Q4 '22.

Our entire team's commitment, focus and can-do attitude pulls together to provide the winning performances we have achieved. The MRI patient vital signs monitor continues to gain acceptance and new customers, and once again, with some sizable orders this past quarter.

We have an expanded selling plan for these coming quarters to keep pushing the monitor business forward as we continue to gain a significant share of the market. Sales of our MRI IV pump came in very strong.

And with our new program for field replacements of older pumps targeted to start after New Year, we received and pleasantly were surprised by having brought in orders in -- per the plan in Q4 ahead of plan. Thusly, we are bullish regarding growth of this older product through 2024.

With performance and the direction of the business, we once again feel comfortable providing our guidance for the year, which you shall learn in a moment. As I had indicated earlier in 2023, we plan to reduce our lead times, which in turn means reducing the backlog.

And although a strong backlog of bookings provides excellent visibility and it allows us to maneuver and reallocate resources as supply issues may arise, we are striving to reduce the backlog and deliver products with less customer lead time, thus -- which what we started in Q3.

However, we still have a bit more backlog and associated long customer delivery lead time than we preferred. So, we shall continue to shave the lead time by another 15 to 30 days in the coming quarters. This is being done through an acceleration of production and materials delivery.

Once again, I'd like to provide progress regarding our FDA efforts surrounding the new 3850 MRI IV pump. Previously, I have spoken of massive testing that's been underway, which continues with some test finished, while still others are in progress, but we are reaching the end.

Our external support consultants are now deeply involved, one for technical help and the other for statutory and relationship assistance. And these costs have been, in fact, impacting earnings, but I do not see them rising materially as we move forward. Still, we feel the outside help necessary to ensure 510(k) success and minimize FDA review time.

We are planning the submission for May for refiling the 3870's 510(k). But should our external help suggest additional or different elements that cause additional time, we will consider such input carefully. We feel that such external inputs would help us produce a more concise 510(k) filing and so shorten the lead time the FDA needs for clearance.

Expecting clearance in Q1 2025, we would plan to show revenue from the new device in the back half of 2025. As for our guidance for the full year 2024, we expect to report revenues 72 to 47 -- sorry, $72 million to $74 million, with GAAP diluted earnings per share of $1.37 to $1.47 and non-GAAP diluted earnings per share of $1.52 to $1.62.

For the first quarter of 2024 financial guidance, we expect revenue of $17 million to $17.3 million, and GAAP diluted earnings per share of $0.29 to $0.31, and non-GAAP diluted earnings per share of $0.33 to $0.35. Now, I'd like to highlight some of the details of our device sales performance during the year.

The FMD product is still a relatively small contribution to overall revenue, increased over three-fold in 2023 from 2022. The 3880 MR patient monitor device sales increased 17% and the 3860 IV pump sales rose close to 35% in 2023, helped by the replacement strategy I spoke of earlier.

All in all, we are very proud to deliver such performance to our shareholders and look forward to 2024. Now, I'd like to turn the call over to Jack Glenn, our CFO, to review the financial results for the quarter and year.

Jack?.

Thank you, Roger, and good morning, everyone. As in the past, our results are reported on a GAAP basis and a non-GAAP basis. You can find a description of our non-GAAP operating measures in this morning's earnings release and a reconciliation of these non-GAAP measures to the GAAP measure on the last page of today's release.

As we reported earlier this morning, revenue in the fourth quarter of 2023 was $17.5 million, an increase of 17% compared to the fourth quarter of 2022. Domestic sales increased 12% to $13.6 million, and international sales increased 45% to $3.8 million.

Overall, domestic revenue accounted for 78% of total revenue for Q4 2023 as compared to 82% for Q4 2022. Device revenue increased 31% to $12.8 million. This was driven by a 60% increase in monitor revenue.

Revenue from disposables and services decreased 8% to $4.1 million for the fourth quarter of 2023, while our maintenance contracts were down 13% at $518,000. The gross margin was 76.9% for the 2023 quarter compared to 75.5% for the 2022 quarter.

The increase in gross margin is primarily due to the increased absorption of fixed overhead from the higher production volumes in the quarter. Operating expenses were $8.3 million or 47% of revenue compared to $7 million or 47% of revenue for the fourth quarter of 2022.

On a dollar basis, this increase is primarily due to higher general and administrative expenses for additional headcount, higher regulatory expenses, legal and professional expenses and increased benefit expenses. As a result, income from operations grew 21% to $5.2 million for the 2023 fourth quarter.

We recognized the tax expense during the fourth quarter of 2023 of approximately $1.1 million, resulting in an effective tax rate of 20.1% for the quarter and an effective tax rate of 20.9% for 2024 -- for 2023. This was relatively the same effective tax rate as the 20.7% in 2022.

On a GAAP basis, net income was $0.36 per diluted share compared to $0.29 for the 2022 quarter. On a non-GAAP basis, adjusted income was $0.39 per diluted share for the 2023 fourth quarter compared to $0.32 for the fourth quarter of 2022.

Cash from operations was $3.9 million for the three months ended December 31, 2023, up from $3 million for the same period in 2022. And for the three months ended December 31, 2023 and 2022, our free cash flow, a non-GAAP measure, was $3.3 million and $2.6 million, respectively. And with that, I will turn the call over for questions.

Operator?.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Frank Takkinen of Lake Street Capital Markets..

Great. Thanks for taking the questions, and congrats on the quarter. I was hoping we could start with one on the 2024 guidance.

Can you help us understand how you're thinking about the growth profile of pumps, monitors and disposables to bridge us to the $72 million guide -- $72 million to $74 million guide?.

Yes, Jack, do you want to handle that or....

Well, sure. I think that, Frank, from a pump perspective, we've seen and you'll see in -- you saw in Q4 that we had a very strong orders coming in and bookings from the program that we've talked about on the end of life. So going forward, we probably are a little more optimistic on the pumps than maybe before from that perspective.

The monitors continue to grow in that double-digit-type growth. And the disposables, I would say, consistently, will be somewhere around that 25% to maybe as high as 30% of total revenues going forward and kind of grow in line with the capital, I would say.

But on that, I would say the caveat being that disposables can kind of be a little bit lumpy from quarter-to-quarter based on our lead times are shorter, so we don't have the visibility. But overall, I think that's how we kind of get to our growth number to the $72-ish million-type number..

Got it. That's helpful. And then maybe an update on the monitor competitive landscape.

Anything you can provide related to how penetrated you feel you are into that replacement opportunity of the previous players or current player on the market other than yourselves in replacing those monitors? How penetrated into that opportunity do you think you are at this point?.

Well, maybe I'll take that one, Frank. Good to talk to you. Well, there's sort of two aspects to that, right? There's the penetration into, let's say, the day-to-day business that happens, month by month, quarter by quarter. And at this point, we feel that we're probably between 35% and 40% of the market for the day-to-day sales.

But that doesn't address how many of our bigger competitors' products are out in the field. They have probably 10,000-plus that are installed around the world in the field.

And so, currently, between the players in this market, we feel that we're shipping collectively somewhere just under, let's call it, around 1,000 units a year, and we have, as I said, 35%, 40% of those. But, that still leaves you a long way to go to replace all these others close to 10,000 older ones that are everywhere on the planet.

So that's why I say it's kind of a two-fold way to look at the existing sales day-to-day versus replacing the legacy products that have been sold in the marketplace these last 30 years..

Got it. That's helpful.

And then maybe just for my last one, if you can provide a little more of an update around the IV pump replacement cycle now that you have discontinued the warranty coverage on the seven-plus year one? I know you've talked about there's been -- there was an influx of, we'll call them, RFPs that came in, and clearly, that converted into some orders and some revenue recognition as well.

How should we be thinking about that? Is there anything you can quantify that's out there to help us understand how significant the replacement of the old pump could be with this warranty discontinuation for the older pumps?.

Well, as I said earlier in the call, that growth, that's why I took the time to sort of break down by product by product, device by device, what our growth has been, that old pump sales rose 35% in 2023, largely at the end of it because as I -- maybe I fumbled the words a bit, but largely at the end of 2023 because we got results from this replacement announcement that we stimulated back in August or September is when we first decided to do it and made people aware of it.

So yeah, I think we've got a nice surprise that not only were we getting quite a few hundred RFQs, as you said, and we quoted -- resulted in quotes to those customers, but some of those customers turned around and placed orders, which was more rapid than we thought they would, resulting in the pump business up pretty good in 2023.

And so, we're pretty happy that, that trend is going to carry on for the next several months yet and breathe quite a bit of life still on the old pump..

That's helpful. I'll stop there. Thanks for taking my questions, and congrats on all the progress..

Thanks, Frank. Good to talk to you..

Thank you. One moment for our next question. And our next question comes from Frank DiLorenzo of Singular Research..

Good morning, and thank you for taking my question -- and questions, actually.

The question about the general and administrative increase for Q4, was that largely related to the consultants, because that was a little bit of a bump there in the fourth quarter, so if you could just talk about that?.

Yes, Frank, that it was a lot attributed to outside consulting and legal, as we've talked about, as we -- on the 510(k) progress being made. And so that would be expected to be bumped up, I think, going into the -- especially early part of this year, like in the Q1 and Q2 especially.

So probably in kind of the spend in line with what was in Q4 from that perspective..

Okay. Thanks.

And going back up toward the top-line for your gross margins, is the goal of around 80%, is that still a realistic target longer term, say, once you get the launch of the new product assuming sometime in the second half of 2025? But say 2026 and beyond, is an 80% gross doable on your side?.

Well, I would say that's pretty optimistic. I mean we certainly have a target than a goal to get there. But I would say that right now, as we've said, it's probably -- obviously, we've been north of 75% and in that range of 76%, 77% kind of range.

I think that maybe -- certainly, as we get on some higher volumes, we could always, again, continue to cover more of the fixed overhead. But I think 80% is possible, but probably not in the near future..

So, 77% is....

I might chime in....

That varies also just by geographic mix quarter-to-quarter, right, in product mix and -- but I would say that our ASPs have certainly stayed very strong.

And actually, on the monitoring side, we were able to get some price increases up from an ASP standpoint, and that certainly has helped us overcome some of the material costs that we've been seeing as everyone else has been over the last year..

Okay. One other question, you said you had a better-than-expected strength with the pump business.

Looking into 2024, are you seeing any differences, similarities between 2023 regarding budgeting landscapes for the various hospital systems out there? Is it stable? Is it strengthening? Could you provide maybe a little granularity on that?.

Yes. On the sales side, we aren't seeing any pullback from hospitals, et cetera, which you're trying to get at, generally for ordering pumps or monitors or FMDs.

But in fact, the pump that's getting a boost on top of that from the obsolescence that we did in September -- back in August or September, we advised our customers we wouldn't be selling extended maintenance on 7-plus -- 7-and-older-year pumps. And that's resulting in a lot of activity.

We started last quarter, and we think it'll go several quarters yet. And that money is -- as I said, we were pleasantly surprised last quarter, that money got broken lose pretty soon, pretty quick. So no, we're not seeing any pullback..

Okay. Thanks. Just one other question. For the ferromagnetic detection systems, can you talk about long term what you think the opportunity is, the total addressable market, US, ex US? Thanks..

Yeah. Well, it's a small market still. And it's getting littered with a lot of players. We see it is a very low barrier to entry, right? It's not a medical device. And so, we see a lot of players that are small and not that [indiscernible] device makers doing these devices on the one hand.

On the other hand, the size of this business is somewhere between $15 million and $17 million, $18 million. It's sub-$20 million right now. So, it's not a huge market. But we're looking to take a sizable piece of this market. What we are learning is a big piece of the business is done through design firms and architectural firms, contractors.

These things are put in during the time that rooms, MR rooms are being built. So that's a pipeline we're trying to fill. So obviously, this takes a long way to get that -- those things start before they start falling out the other end and resulting in business.

But that's where we feel the best return is for our sales efforts, if you will, but they are rather slow to get that prime the pump, so to say..

Thank you. That's helpful. Thanks..

Thank you. This concludes the question-and-answer session. I would now like to turn it back to IRadimed for closing remarks..

Again, thank you. Again, it's with great pleasure that we report our year-end and Q4 2023 results. It's also a great pride that we can guide that we expect strong performance as the new year progresses. And with that, I look forward to reporting our future successes as the year progresses, and thank you all very much..

Thank you. This concludes the call, and you may now disconnect..